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RNS
WYG Plc  -  WYG   

Final Results

Released 07:00 05-Jun-2018

RNS Number : 2679Q
WYG Plc
05 June 2018
 

5 June 2018

WYG plc

 WYG plc, the international project management and technical consultancy, announces its audited final results for the year ended 31 March 2018, highlights of which are as follows:

 

HIGHLIGHTS

Stable revenue; improved H2 and strengthening orderbook

 

Financial overview:

·           Revenue* up 1.7% at £154.4m (2017: £151.8m); H2 revenue of £78.2m (H1: £76.2m)

·           Statutory operating loss of £4.8m (2017 profit of £2.2m); loss before tax £5.3m (2017: profit of £1.6m) after previously announced £2.5m increase in legacy claim provisions and a £3.2m charge relating to the closure of the North Associates business

·           Adjusted operating profit** £3.5m (2017: £8.8m); H2 operating profit of £2.5m (H1: £1.0m)

·           Adjusted profit before tax** £2.9m (2017: £8.2m); H2 adjusted PBT of £2.2m (H1: £0.7m)

·           Adjusted diluted earnings per share** 4.4p (2017: 11.9p)

·           Loss per share 6.9p (2017: earnings of 3.3p)

·           Proposed final dividend maintained at 1.2p (2017: 1.2p), giving a total dividend for the year of 1.8p (2017: 1.8p)

·           Operating cash conversion*** of 190% (2017: 92%)

·           Net debt as at 31 March 2018 £6.3m (30 September 2017: £10.1m, 31 March 2017: £2.5m) impacted by capital expenditure, cash costs of legacy items**** and restructuring

·           Order book up 14.7% to £166.4m as at 31 March 2018 (31 March 2017: £145.0m):

Consultancy Services order book up 6.9% to £96.1m (2017: £89.8m) reflecting continuing growth in our infrastructure and planning markets

International order book up 27.5% at £70.3m (2017: £55.2m) following project wins in the year

 

*          Including revenue from Joint Ventures

**        Adjusted operating profit is statutory operating profit after adding back separately disclosed items

***      Underlying operating cash conversion is defined as adjusted operating cash flow divided by adjusted operating profit

****    Items include PII claims, vacant premises and legacy pensions costs

 

Operational overview

·           Consultancy Services revenue up 3.0% at £119.3m (2017: £115.8m), reflecting improving performance across most areas, despite project delays in H1

·           International Development revenues reduced to £35.1m (2017: £36.1m) as H2 was impacted by delays in funding for Turkish projects caused by the transition between the first and second phases of the IPA funding programmes

·           Established a new international holding company in the Netherlands to underpin ability to bid, win and deliver EU work

·           Agreed and extended £35m bank facility with HSBC to 2022

·           Actions being taken to improve profitability and efficiency across the business include:

Closed loss-making North Associates business

Closing non-core Romanian and Bulgarian businesses - trading licences retained

Steps taken to simplify and flatten the management structure

Efficiency review underway, for implementation progressively in FY 2018/19 and beyond

Targeted investment in IT, including digitalisation, business infrastructure, London presence and capabilities to support efficient future growth

·           Board changes:

Douglas McCormick appointed as Chief Executive Officer in June 2017

Jeremy Beeton succeeded Mike McTighe as Chairman with effect from September 2017

Marcia Marini appointed as a non-executive Director with effect from January 2018

David Jeffcoat to retire at the AGM following 9 years' service

 

Current Trading & Outlook:

·           Strengthening order book provides a sound basis for current year expectations and medium-term confidence

·           Consultancy Services business delivering improved results

·           International Development opportunities continue despite delays in Turkey

·           Underlying business robust, expecting to return to an improved profitability trajectory in the medium term

 

Douglas McCormick, Chief Executive Officer of WYG plc, commented:

"These results reflect an improved second half despite the continued delays experienced by our Turkish business. Having posted a disappointing set of results at the half year, the team has taken action to start to offset the issues we highlighted in August and November 2017, and there have since been several positive developments ensuring that we met the market's revised expectations of our profit and cash performance.

 

"We have made good progress implementing our strategy; extended our bank facility with HSBC; and completed a significant step to stabilise WYG's position in light of the potential impact of Brexit.

 

"Many of the major projects in both of our principal business streams that were delayed in 2017 are now being delivered and our strong order book underpins a significant proportion of FY19's projected earnings. We have a clear strategy in place, a reshaped leadership team and a strong wider group with deep expertise in our chosen markets.  There is plenty of opportunity to build on this robust platform and I believe we are taking the right steps to return to growth in profitability."

 

Contacts:

 

WYG plc

Douglas McCormick, Chief Executive Officer

Iain Clarkson, Chief Financial Officer

 

Tel: 0113 278 7111

MHP Communications

Katie Hunt / Ollie Hoare / Pete Lambie

 

Tel: 020 3128 8100

N+1 Singer     

Sandy Fraser / Rachel Hayes

 

Tel: 020 7496 3000

WH Ireland Limited

Tim Feather / Ed Allsopp

 

Tel: 020 7220 1666

Chairman's statement

 

Introduction

Having announced a disappointing set of results at the half year, the Group delivered an improved second half, despite the project delays experienced by our Turkish business, delivering  revenues of £154.4m, operating profit before separately disclosed items of £3.5m, and net debt of £6.3m for the year ended 31 March 2018.

 

Overall, we have seen increased activity in almost all areas of our Consultancy Services business, albeit at lower levels and margins than anticipated at the beginning of the year. Our International Development business showed good growth in all areas except Turkey which has been affected by the transition between the first and second phases of the IPA funding programmes.

 

We have improved the shape of the Group, simplifying the management and Board structure and are underway with a review to identify cost initiatives which, alongside investment in the Group, will improve the Group's efficiency in the near term and better support sustainable growth in the medium term.

 

Our response to the challenges we reported in the first half will improve our resilience as a business capable of generating quality revenues from front-end, value-adding consultancy services and international development programme implementation, monitoring and evaluation. We now have committed funding, strong operational leadership and good visibility of a healthy pipeline of opportunities with international financial institutions and government agencies with which we have good relationships.

 

We now anticipate that the improvement which started in the second half of the year will continue into the new financial year and, as we deliver on our commercial strategy and make selected investments in the business to support future growth, we remain confident that WYG is a fundamentally sound business with a strong platform from which to grow over the medium term.

 

Commercial Strategy

Our strategy is to grow over time by developing and serving markets for our consultancy and international development expertise through an appropriate blend of organic investment and selective acquisitions, whilst recognising the risks and opportunities presented by a dynamic global market and political environment.

We will achieve this by harnessing specialist skills from across the business to address the challenges of climate adaptation, energy planning, defence, major infrastructure development, water management, mass migration and the growing UK housing requirement, whilst changing the way that we do business to become more efficient at responding to our clients' needs by:

Developing a simpler, more robust platform

During the last year we have brought together those parts of our business, both in the UK and internationally, which operate in related technical services fields under the Consultancy Services business stream. Our International Development business stream now focuses on projects where we work in collaboration with governments and international finance institutions to promote socio-economic stability and trade development, unlocking the potential for sustainable development among local communities.

We have closed our loss-making North Associates business and today confirmed the closure of our Romanian and Bulgarian businesses where we could not see sufficient potential returns.

In addition we have taken steps to simplify, flatten and strengthen the management structure and Board, with all of the businesses now reporting directly to CEO Douglas McCormick, and made a number of high calibre appointments across the Group whilst not replacing certain senior management and Board roles.

Driving efficiencies

Operationally, we continue to drive efficiencies in our office portfolio, from which we derive other benefits, for example in reduced IT costs and better collaboration to make the most of technology to improve the quality of our delivery.

We are currently undertaking a wider efficiency review to identify key cost-reduction initiatives to be progressively implemented in the current financial year and beyond.

We have also recently initiated a programme to achieve a greater standardisation of business processes throughout the Group to deliver gains from improving systems, embracing new technologies and investing in training. We will be seeking to deliver measurable improvements in the coming year.

Return to sustainable growth in the medium term

We will continue to make targeted investments in technology, including in digitalisation of the way we work, in Group infrastructure, in our London presence and in the capabilities that will enable us to deliver sustainable growth in the medium term. 

We are also looking at opportunities to deploy our existing range of specialist skills into new markets, for instance where we can use strong sector credentials in one geography to develop new business in another. 

Once we have an enhanced and more efficient platform in place, we will also consider selective acquisitions that will extend our capabilities, geographical reach or access to certain clients or funding streams.

We believe this three phased strategy will provide us with a strong platform from which to deliver our ambition of continuing as a trusted adviser to clients and providing them with a broad set of expert consultancy services which help them create value, manage risk and make critical investment decisions.

Results

Revenue (including our share of Joint Venture revenues) for the full year was up 1.7% to £154.4m (2017: £151.8m). Revenue in the second half was up 2.5% to £78.2m (H1 2018: £76.2m). The 9.5% increase in Consultancy Services revenue in the second half was offset by the significant reduction in revenue from our Turkish business.

On a statutory basis, the Group made a loss before tax of £5.3m (2017: £1.6m) on pre-joint-venture revenues of £152.9m (2017: £150.5m).  The statutory loss reflects an increase of £2.5m in our provision for contract claims and costs of £3.2m relating to the closure of the North Associates business acquired in October 2015. Earnings per share adjusted to exclude separately disclosed items were 4.4p (2017: 11.9p). On a statutory basis, the loss per share was 6.9p (2017: earnings of 3.3p).

 

Adjusted operating profit was £3.5m (2017: £8.8m) representing a marked reduction in adjusted operating margin to 2.3% (2017: 5.8%). This was caused by losses in our real estate business, high rates of staff turnover in two key businesses areas, delays in major projects, and revised expectations of a small number of engineering projects. Adjusted operating profit improved in the second half to £2.5m (H1 2018: £1.0m). Adjusted profit before tax was £2.9m (2017: £8.2m).

The Group closed the year with net debt at 31 March 2018 of £6.3m (31 March 2017: £2.5m). This is the result of increased investment in the business both in terms of capital expenditure  on two new offices (London and Ankara), and expenditure on other legacy and restructuring items. Cashflow before legacy costs (in relation to PII claims, vacant premises and pensions) and investments was £3.0m (2017: 5.4m). 

 

As at 31 March 2018, the Group's order book was up 14.7% to £166.4m (31 March 2017: £145.0m), with the committed pipeline of work to be undertaken in the current year giving a sound basis for the delivery of the Board's current year expectations. 

 

Bank facility

In September 2017, we increased our committed multi-currency revolving credit facility with HSBC from £25m to £35m. The facility offers the Group broad flexibility between debt and bonding requirements and now runs until September 2022.

 

Dividend

In April 2018, we paid an interim dividend of 0.6p.  The Board remains confident in the Group's medium term prospects, therefore, subject to the approval of shareholders at the AGM, a final dividend of 1.2p will be paid on 3 October 2018 to ordinary shareholders on the register on 7 September 2018, maintaining the overall dividend for the year at 1.8p per ordinary share (2017: 1.8p).

 

Board changes

As previously announced, on 12 June 2017 Douglas McCormick took up the appointment of Chief Executive Officer and, on 21 September 2017, I succeeded Mike McTighe as Chairman of the Board. Neil Masom agreed to become the Senior Independent Non-Executive Director.

 

Marcia Marini was appointed as a Non-Executive Director with effect from 1 January 2018. Marcia has 25 years' experience in a wide range of businesses and sectors, including with UK Government agencies operating in the international development arena. Between 2003 and 2008, she was Managing Director of Mott Macdonald's Health Unit, an Executive Director of their Education Unit and, for a time, a member of their Risk Management Committee.

 

Having completed nine years' service as an independent non-executive Director, during which time he chaired the Audit & Risk Committee, David Jeffcoat will retire from the Board at the conclusion of this year's AGM. On behalf of the Board I would like to thank David for the contribution he has made over the past nine years. We have decided not to replace David's role on the Board and to operate from September as a smaller team.

 

With effect from the AGM, Neil Masom will chair the Audit & Risk Committee and Marcia Marini will chair the Remuneration Committee.

 

Risks and uncertainties

As an organisation that contracts directly with the EU, we remain mindful of the challenges presented by Brexit and the ongoing uncertainty surrounding its eventual implementation. To date we have seen no material impact on financial performance from the decision. Our international business model is robust and agile and our UK and international subsidiaries have continued to win work with major international finance institutions and our other clients at levels consistent with historic bid-win rates.

 

As announced in December 2017, we have taken steps to mitigate the risk of Brexit by creating a new intermediate holding and management company in the Netherlands to ensure we remain eligible under the relevant EU regulations to bid for, secure and deliver work funded from the EU Budget or EU Development Funds. We achieved this by undertaking a merger of WYG International Limited with a newly created company registered in the Netherlands, in accordance with the UK Companies (Cross-Border Mergers) Regulations 2007 and the relevant provisions of the Dutch Civil Code. The merger became effective on 1 December 2017. The new company has inherited the staff and the financial and project track record of its predecessor company.

 

In addition, there are other geo-political uncertainties that could affect WYG's performance and, as we saw in both the last two years, programme deferrals on existing contracts and delays in the confirmation of new contracts present an ongoing risk to WYG's expectations of its performance.

 

People

As a Board, we recognise that it is the enthusiasm, quality and dedication of our employees that underpin our success and, during the year, we have witnessed many of the great qualities people bring to WYG. These will be essential as we move the business forward and it is very pleasing to see that this has been recognised in a number of awards and commendations during the period.

 

We are pleased to have made several new and high calibre senior appointments who we expect to make significant contributions to winning and delivering new business in the coming years. Since the year end, we are also pleased to have seen a stabilisation in staff turnover rates, which had been high in two key businesses areas during the year.

 

Current trading and outlook

Against a backdrop of relative economic stability in the UK, continuing government expenditure on selected infrastructure and other long-term programmes creating a reasonably positive environment for our main public and private sector clients, we expect opportunities for our front-end planning and consultancy business to continue to grow.

 

Although we continue to experience some delays in Turkey caused by the transition between the first and second phases of the IPA funding programmes, IPA II projects are now being let and there is a healthy pipeline of opportunity in all our other international development target markets.

 

We are also looking at opportunities to deploy our existing range of specialist skills into new markets and, during the next 12 to 18 months, we expect to deliver improvements in efficiency driven primarily by further rationalisation of the property portfolio and greater use of technology and innovation.

 

As a Board, we remain confident that the underlying business is robust and that, supported by a strengthening order book and the careful selection of investments in the business to support future growth, we are taking the correct steps to return to growth in profitability. We therefore expect a performance in the current financial year ending in March 2019 which is in line with market expectations.

 

Business performance

 

Introduction

Over the period as a whole, our Consultancy Services business saw growth in almost all its main markets, albeit not quite enough to absorb all of the impact of the issues that affected the business in the first half.

 

Significantly lower than anticipated volumes of work under major framework contracts, combined with the loss or delay of certain new contracts we had previously expected to win in the first half, led the Board to announce on 24 November 2017 that it was taking a more cautious view of trading performance for the remainder of the financial year. That guidance took account of:

·      the impact of intense competition for senior talent in the Southern region of our Planning and Transport Planning business;

·      the decision by the lead developer to defer investment in the proposed new nuclear power plant at Moorside which had severe knock on effects for many businesses, including Britain's Energy Coast, a major client of the real estate consultancy, North Associates, which had its core operation in Cumbria;

·      a review of major contracts which concluded that a small number of UK engineering projects were likely to deliver lower profitability than previously forecast; and

·      continuing softness in the Polish market where, despite having completed most of the restructuring necessary in Poland and with the business starting to deliver better profitability from its reduced cost base, it appeared unlikely to achieve its targets for the year.

 

In the second half, having addressed the issues described above, the Consultancy Services business delivered an improved performance in both revenue and profit terms, closing the year more positively.

 

It was also a year of two halves for our International Development business. Having started the year slowly in Africa, Rest of World/Multi-country (ARM), when two major programmes we expected to mobilise during the early part of the financial year were delayed, the business started to perform in line with expectations in Q2 and, by December 2017, had begun to catch up some of the ground lost. Work on both these major programmes is now progressing well.

 

By contrast, in Turkey, we enjoyed a strong first half, making the most of the opportunities won in 2016/17 under IPA I.  Unfortunately, the second-half was characterised by delays in new programmes being tendered under the next funding cycle, IPA II. Although projects are now flowing from IPA II, these delays meant that, for the year as a whole, the International Development business saw a reduction in revenue and profitability on previous years.

 

Operational review

Operationally, the Group was structured and reported throughout the financial year in line with our new organisational structure:

·      Consultancy Services - which included all our UK activities and those parts of our international business which operated in similar technical services fields and comparable markets i.e. Poland and Bulgaria 

·      International Development

 

Consultancy Services (77.3% of Group Revenue)

WYG's Consultancy Services business generated a 3.0% increase in revenue (including our share of Joint Venture revenues) (including our share of Joint Venture revenues) to £119.3m (2017: £115.8m) with an operating profit before separately disclosed items and central overheads of £5.4m (2017: £8.4m). 

 

WYG Consultancy Services provides expertise in a broad range of services across the full lifecycle of projects in property, assets and infrastructure, which makes us well positioned to take advantage of growing opportunities in our markets.  During the period, we operated in three divisions: Planning & Advisory Services, Asset & Project Management and Infrastructure & Built Environment.

 

With effect from April 2018, we have been operating as five units: Infrastructure & Built Environment, Programme & Project Management (P3M), Surveying & Asset Management, Environmental, and Planning & Transport with a strong senior team in place to build upon our expertise in each of these areas.

 

In Infrastructure & Built Environment, our architectural, engineering and design teams continue to see good opportunities not only in the education, highways and rail markets but also for more innovative and efficient methods of delivering our services such as BIM (Building Information Modelling), VR (Virtual Reality) and GIS (Geographic Information Systems). For example, our use of Level 2 BIM on the Curzon Building on Birmingham City University's campus led directly to improved coordination between the design and construction processes and generated significant cost savings. We have delivered flagship projects such as Southern Regional College's £35m new campus in Armagh, which won an award for procurement innovation, and are working on the development of the Leeds City College Quarry Hill campus. Our Highways team sees the allocation of vehicle excise duty funding towards the strategic road network and positive announcements in the Road Investment Strategy which could see a doubling investment in the network over the next funding period, as presenting exciting new opportunities. Our work on Leicester's Haymarket Bus Station covered highways, civil engineering and structural and M&E engineering, demonstrating how we are able to bring together an effective multi-disciplinary team to deliver prestigious new schemes for our clients.  In Rail, we have secured a number of new projects in station support and environmental planning in the UK, as well as feasibility studies for several major new projects in Poland. In nuclear, we are supporting James Fisher Nuclear Ltd (JFN) in its four year contract with Magnox to undertake decommissioning activities on the Steam Generating Heavy Water Reactor (SGHWR) at the Winfrith Site, Dorset. This is the biggest single decommissioning contract outside of Sellafield for WYG and positions us well for emerging opportunities in nuclear decommissioning across the UK. 

 

Our P3M team continues to focus heavily on a broad portfolio of defence-related projects not only in the UK but also overseas, with commissions as varied as a new urban development district on part of the former Aldershot Garrison to the UK Naval Support Facility at Mina Salman in Bahrain which was formally opened in April 2018. This four year project involved engagement with stakeholders at tri-service level and with other governmental bodies both in Bahrain and the UK and drew on the close cooperation of our structural engineering colleagues. Leveraging the duty of care expertise developed working overseas in the defence sector we continue to grow our relationship with FCO Services, providing support to them across a geographically diverse asset portfolio. Our PMs and Cost Consultants also work widely across the commercial and residential, including social housing sectors and we have helped our clients deliver a variety of new office and housing units across the UK.  

 

Our Surveying & Asset Management business is developing ways of digitising some of its core service offering, generating efficiencies and competitive advantage in our service delivery and continues to look at innovation in other areas. In this business we combine our building surveying, safety management, building consultancy, asbestos and assurance services. A significant proportion of our work comes through the energy sector. Although uncertainty remains in the UK new build sector, we remain confident that nuclear will be an important part of the energy supply chain for the foreseeable future.  We have a strong nuclear capability built on a 30-year presence in nuclear in West Cumbria. We have also been appointed for new CDM (Construction Design & Management) and acoustic requirements with EDF at Hinckley C, while being well placed for the expected Moorside project.  Within the nuclear decommissioning market, we were appointed on a new framework at Dounreay for asbestos management consultancy complementing our design and geo-spatial expertise in this very specialist sector.  In other energy markets, low carbon generation and balancing infrastructure continue to be a focus for us. The increasing economic viability of wind has led to new work in planning and site support. Beyond our nuclear and other energy work, we have longstanding framework contracts for our facilities and asset management services with the Ministry of Justice, Surrey County Council, Crossrail and Sussex Police. We continue to provide our whole asset management services across a number of other sectors to UK clients with broad portfolios such as Network Rail and Royal Mail, while internationally we support FCO Services on projects all around the world.

 

Our Environmental business is also showing growth. Residential and mixed use development remain the major sources of our environmental planning work, where we bring a good track record and our sustainability principles together to inform master planning and design. Infrastructure, in particular in highways, rail and flood defence, also draws heavily on many of our geo-environmental skill areas as does land regeneration, particularly through our frameworks with National Grid and Homes England. We recently began work at Perry Barr in Birmingham on the site for the 2022 Commonwealth Games Village and, we expect this major project, which will ultimately deliver up to 3,000 new homes, new infrastructure and transport,  to transform that area as we look to build our presence in the city.

 

We are the UK's third largest planning consultancy with more than 200 staff across our Planning & Transport Planning practices. The UK government's continuing focus on residential construction is leading to an increase in our work, including a growing number of proposals for large scale greenbelt development. We are also increasing our activity in the retail and hotel sectors, while working across the UK to build projects that use the combination of our national coverage and local expertise. Our expertise in Intelligent Transport Systems is enabling us to work with our International Development Business to build state of the art public transport systems and improved traffic management in developing cities across the world including Nairobi. This combination of our socio-economic and technical skills to deliver infrastructure development is expected to deliver further growth in the coming year.

 

A significant proportion of our work draws on more than one of these disciplines and we are constantly looking at ways to maximise the opportunities that our combined expertise affords, while delivering as seamless and frictionless an experience for our clients as possible.  As we look to the future, we expect our strategic focus on greater efficiency, standardisation and digitisation across the business to generate significant benefits both across the Consultancy Services business and the broader Group.

 

As at 31 March 2018, the Consultancy Services business's order book had increased by 7.0% to £96.1m (31 March 2018: £89.8m).

 

International Development (IDB) (22.7% of Group Revenue)

WYG's International Development business generated revenue of £35.1m (2017: £36.1m) with an operating profit before separately disclosed items and central overheads of £2.0m (2017: £4.7m). 

 

We generate our revenue from socio-economic, technical and infrastructure programmes, organised on a sectoral basis. The main sectors were:

·      Public Financial Management (PFM) & Governance

               ·      Monitoring, Evaluation & Learning (MEL)

               ·      Human Resources and Social Development

               ·      Climate Change & Adaption

               ·      Infrastructure & Advisory Services

In 2017/18 we saw a significant increase in opportunities in these sectors and we expect this favourable environment to continue for the foreseeable future. In addition, as part of our Brexit mitigation strategy, WYG has created a new legal entity in the Netherlands, WYG International B.V., which has been fully integrated with our IDB business in order to allow continued access to our European Markets.

With two major contract wins funded by the UK Government, we took an important step towards diversifying our client-base beyond its historic dependence on EuropeAid and World Bank. These were the multi-million pound evaluation programme of the globally-operating FCO Prosperity Fund  Programme, and the "Climate Resilient Infrastructure Development Facility (CRIDF) Phase II", both of which are now operating successfully in partnership with HMG.  The award of the FCO evaluation programmes reinforces WYG's strength in the niche MEL sector and greatly expands our regional presence into South America, SE Asia and China as well as consolidating in Africa, CIS and Western Balkans.

The award of CRIDF II has bolstered the portfolio of our Climate Change and Adaptation Division. Another key project in this sector is the Sustainable Agriculture Intensification Research and Learning in Africa (SAIRLA) programme which is being jointly managed by WYG alongside the Natural Resources Institute at the University of Greenwich. SAIRLA is a five-year, £8 million programme aimed at delivering more effective policies and investments in sustainable agricultural intensification.

Our early intervention into migration mitigation through the establishment of the Migration Partnership has secured a number of new contracts, most notably the award of a programme funded by the EU Emergency Trust Fund - "Building Opportunities for Resilience in the Horn of Africa (BORESHA)". 

Our Infrastructure and Advisory Services team has seen a significant increase in revenue, mainly through the EIB funded Western Balkans Infrastructure Facility (WBIF) programme - where WYG either inputs or leads on three major Infrastructure Project Facility programmes focusing on project preparation in the energy, transport, environment and social infrastructure sectors.  WYG's work with the WBIF continues to provide opportunity for growth as the highly successful facility is further extended both within the Western Balkans and into other regions including Middle East and North Africa.

Our Infrastructure & Advisory Services Division also continued to lead the market in the water & waste water sector in Turkey, where we are delivering six major projects. We have also successfully completed our first major project in the Turkish transport sector, "Turkey's National Transport Masterplan" and our first project in the environment sector. We continue to make good progress with our efforts to diversify in technical services and pursue eligible opportunities with a range of public and private sector organisations in relation to:  soft environment (i.e. climate change, agro-environment, environmental impact assessment, eco labelling), transport (i.e. road safety, capacity building for ministry of transport, accessibility of passenger transport services), energy (renewables, energy efficiency) and in other sectors in Turkey, Jordan, Lebanon and the rest of the region.

 

The PFM Division continues to be very active in winning work and project delivery, with wins in Somalia, Nigeria and The Gambia, while Human Resources and Social Development Division  delivered a wide variety of programmes in Turkey designed for institutional capacity building, education, employment and social inclusion.

Now that the IPA II Instrument is beginning to come through, WYG's Turkish business has secured significant wins, with the Town Twinning Programme and a project designed to achieve a better functioning consumer protection framework in line with EU Member States' best practices.

The donor market, which underpins so much of what we do, is showing signs of being highly buoyant as we move into the next financial year, with the EU IPA (Instrument for Pre-accession Assistance) II programme's €1.2 billion projected spend in the Western Balkans and Turkey where WYG has a strong footprint, UK HMG pipeline becoming more tangible and the EU Trust Fund releasing more opportunities. 

This coming year we will be adding Risk & Security to our sector portfolio.

Despite a difficult year impacted by significant delays, we now expect to benefit from the results of a very busy business development period and return to delivering projects and increasing revenues.

 

At 31 March 2018, the International Development business's order book had increased by 27.4% to £70.3m (31 March 2017: £55.2m.)

 

Financial review

Including our share of Joint Venture revenues, revenue for the full year increased by 1.7% to £154.4m (2017: £151.8m). Revenue in the second half was £78.2m (H1 2018: £76.2m). A 9.5% increase in Consultancy Services revenue in the second half was offset by the significant reduction in revenue from our Turkish business as projects funded by IPA I closed out, new projects funded by IPA II were slow to come through and two major international projects took longer to start than anticipated.

On a statutory basis, the Group made a loss before tax of £5.3m (2017: £1.6m) on pre-Joint-Venture revenues of £152.9m (2017: £150.5m).  The statutory loss reflects an increase of £2.5m in our provision for contract claims and costs of £3.2m relating to the closure of the North Associates business acquired in October 2015. Although we have had considerable success in reducing the number and value of outstanding liabilities from legacy businesses over the past few years, in light of certain contract claims issues from discontinued businesses, we decided in December 2017 that it would be prudent to increase this provision, which is reported within separately disclosed items.

 

Adjusted* operating profit was £3.5m (2017: £8.8m) representing a marked reduction in adjusted operating margin to 2.3% (2017: 5.8%). This was caused by losses in our real estate business; the high rate of turnover in headcount within our Planning and Transport Planning businesses leading to lower efficiency; delays in volumes on some major frameworks; and revised expectations in relation to a small number of engineering projects leading to a reduction in margins. However, adjusted operating profit did improve in the second half to £2.5m (H1 2018: £1.0m) and the rate of staff turnover has started to reduce. Adjusted profit before tax was £2.9m (2017: £8.2m). Unallocated central overheads reduced to £4.0m (2017: £4.2m) reflecting ongoing cost control in the Group.

* See note 2

Separately disclosed costs for the year (including share based payments and amortisation of intangible assets) were £8.3m. Key elements of this were: the increased charge for PII claims of £2.5m announced in December 2017; £3.2m of costs relating to the closure of the real estate advisory business referred to above; amortisation of intangible assets of £1.2m; and costs in relation to the strategic growth plan and group wide restructuring.

 

Fully diluted earnings per share adjusted to exclude separately disclosed items were 4.4p (2017: 11.9p). On a statutory basis, the loss per share was 6.9p (2017: earnings of 3.3p).

 

The primary component of finance costs is the charges relating to our bond and banking facilities.  Finance costs were level at £0.6m (2017: £0.6m) reflecting our ongoing use of the HSBC facility and the utilisation of advance payment bonds to mobilise large programmes of international development work.

 

The Group still has significant losses brought forward in the UK meaning that it will continue to pay a reduced rate of UK tax for the foreseeable future. We also generate profit in many of our overseas activities, upon which we pay local corporation tax.

The Group closed the year with net debt of £6.3m (31 March 2017: £2.5m). Our cash outlays have included the planned application of £2.8m towards legacy issues (including ongoing commitments on unoccupied offices), dividend payments of £1.3m and c. £2.5m cash costs of restructuring within the Group.  

We have also been able to make some further capital investment in upgrades to our offices and IT during the year - most notably in our new London office at Angel Court and our offices in Ankara and Nairobi.

Cash generation and the effective management of working capital are fundamental to the business and cash conversion is a key performance target for the senior management team. Our working capital KPI, on an 'after payments received on account' basis, improved to 74 days (2017: 78 days) against our KPI target of 76 days. Cash flow before legacy costs and investments of £3.0m (2017:  £5.0m) was weaker, chiefly as a result of the significant reduction in operating profit, but operating cash conversion at 190% was a marked improvement on the previous year (2017: 95%).

As at 31 March 2018, the Group's order book was up 14.7% to £166.4m (31 March 2017: £145.0m) with our Consultancy Services order book up 6.9% to £96.1m (2017: £89.8m) reflecting continuing the strength of infrastructure and planning markets, and our International order book up 27.5% to £70.3m (2017: £55.2m). This healthy pipeline of work, a substantial proportion of which is to be undertaken in the current year, gives a sound basis for current year expectations. 

 

Conclusion

Having posted a disappointing set of results at the half year, the team has taken action to start to offset the issues we highlighted in August and November 2017, and there have since been several positive developments. Our Consultancy Services business performed better in the second half, consistent with our historical seasonal trading pattern. And, despite the significant decrease in revenue coming through our Turkish business in the second half, we met the market's revised expectations of our profit and cash performance following the guidance we gave in November.

 

We have made good progress implementing our strategy; extended our bank facility with HSBC; and completed a significant step to stabilise WYG's position in light of the potential impact of Brexit.

 

Many of the major projects in both of our principal business streams that were delayed in 2017, are now being delivered, and our strong order book underpins a significant proportion of FY19's projected earnings. We have a clear strategy in place, a reshaped leadership team and a strong wider group with deep expertise in our chosen markets. There is plenty of opportunity to build on this robust platform and we are taking the right steps to return to growth in profitability.

 

 

CONSOLIDATED INCOME STATEMENT

For the year ended 31 March 2018

 

 

 

 

 

 

 

 

 

 

 

 

2018

2017

 

Note

£'000

£'000

Continuing operations

 

 

 

Revenue including share of joint venture revenues

 

154,351

151,824

Less share of joint venture revenues

 

(1,500)

(1,284)

Revenue

4

152,851

150,540

Operating expenses

 

(157,700)

(148,585)

Share of result of joint ventures

 

88

198

Operating (loss)/profit

3

(4,761)

2,153

Finance costs

 

(587)

(554)

(Loss)/profit before tax

 

(5,348)

1,599

Taxation

 

336

779

(Loss)/profit for the year

 

(5,012)

2,378

 

(Loss)/profit attributable to the owners of the parent

 

(5,012)

2,378

 

 

 

 

(Loss)/earnings per share

5

 

 

Basic

 

(6.9p)

3.3p

Diluted

 

(6.9p)

3.3p

 

Operating (loss)/profit for the year includes net costs of £8.3m (2017: £6.6m) that are separately disclosed in Note 3.

 

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 March 2018

 

 

 

2018

2017

 

 

£'000

£'000

(Loss)/profit for the year

 

(5,012)

2,378

Other comprehensive income:

 

 

 

Currency translation difference *

 

390

1,110

Other comprehensive income for the year, net of tax

 

390

1,110

Total comprehensive (loss)/income for the year

 

(4,622)

3,488

Total comprehensive (loss)/income attributable to:

 

 

Owners of the parent

    (4,622)

3,488

 

* These items might be reclassified subsequently to the income statement.

 

 

BALANCE SHEET

As at 31 March 2018

 

 

 

 

 

 

2018

 2017

 

Note

£'000

£'000

Non-current assets

 

 

 

Goodwill

 

18,193

18,193

Other intangible assets

 

3,663

7,325

Property, plant and equipment

 

4,277

3,180

Investment in joint ventures

 

737

603

Investments

 

-

-

Deferred tax assets

 

1,173

1,246

 

 

28,043

30,547

Current assets

 

 

 

Work in progress

 

23,722

29,986

Trade and other receivables

 

27,697

30,323

Current tax assets

 

213

370

Cash and bank balances

8

4,750

6,518

 

 

56,382

67,197

Current liabilities

 

 

 

Trade and other payables

 

(40,512)

(49,608)

Current tax liabilities

 

(304)

(235)

Borrowings

8

(6,000)

(4,000)

 

 

(46,816)

(53,843)

Net current assets

 

9,566

13,354

Non-current liabilities

 

 

 

Borrowings

8

(5,000)

(5,000)

Retirement benefit obligation

 

(1,851)

(2,115)

Deferred tax liabilities

 

(1,390)

(2,035)

Provisions

 

(3,807)

(3,177)

 

 

(12,048)

(12,327)

Net assets

 

25,561

31,574

 

 

 

 

Equity attributable to the owners of the parent

 

 

 

Share capital

 

78

75

Translation reserve

 

1,885

1,495

Retained earnings

 

23,598

30,004

Total equity

 

25,561

31,574

           

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

For the year ended 31 March 2018

 

 

 

 

 

 

 

 

 

Note

Share capital

£'000

Translation reserve

£'000

Retained earnings

£'000

Total

£'000

Non controlling interest

£'000

 

Total equity

£'000

 

Balance as at 1 April 2016

 

73

385

27,791

28,249

32

28,281

Profit for the year

 

-

-

2,378

2,378

-

2,378

Other comprehensive income:

 

 

 

 

 

 

 

Currency translation differences

 

-

1,110

-

1,110

-

1,110

Other comprehensive income for the year

 

-

1,110

-

1,110

-

1,110

Total comprehensive income for the year

 

-

1,110

2,378

3,488

-

3,488

Share based payments charge

 

-

-

906

906

-

906

Issue of share capital

 

2

-

-

2

-

2

Dividends

6

-

-

(1,103)

(1,103)

-

(1,103)

Reduction in minority shareholding

 

-

-

32

32

(32)

-

Balance at 31 March 2017

 

75

1,495

30,004

31,574

-

31,574

 

 

 

 

 

 

 

 

 

Balance as at 1 April 2017

 

75

1,495

30,004

31,574

-

31,574

Loss for the year

 

-

-

(5,012)

(5,012)

-

(5,012)

Other comprehensive income:

 

 

 

 

 

 

 

Currency translation differences

 

-

390

-

390

-

390

Other comprehensive income for the year

 

-

390

-

390

-

390

Total comprehensive income/(loss) for the year

 

-

390

(5,012)

(4,622)

-

(4,622)

Share based payments credit

 

-

-

(73)

(73)

-

(73)

Issue of share capital

 

3

-

-

3

-

3

Purchase of treasury shares

 

-

-

(33)

(33)

-

(33)

Dividends

6

-

-

(1,288)

(1,288)

-

(1,288)

Balance at 31 March 2018

 

78

1,885

23,598

25,561

-

25,561

 

 

CASH FLOW STATEMENT

For the year ended 31 March 2018

 

 

 

 

 

 

 

 

 

 

 

 

2018

2017

 

Note

£'000

£'000

Operating activities

 

 

 

Cash generated from operations

7

1,158

3,380

Interest paid

 

(475)

(554)

Tax paid

 

(361)

(944)

Net cash generated from operating activities

 

322

1,882

 

 

 

 

Investing activities

 

 

 

Purchases of property, plant and equipment

 

(2,509)

(1,654)

Purchases of intangible assets (computer software)

 

(173)

(260)

Settlement of deferred consideration

 

(230)

(2,276)

Net cash used in investing activities

 

(2,912)

(4,190)

 

 

 

 

Financing activities

 

 

 

Proceeds on issue of shares

 

3

-

Purchase of treasury shares

 

(33)

-

Dividends

6

(1,270)

(684)

Drawdown of borrowings

 

2,000

1,000

Net cash generated from financing activities

 

700

316

Net decrease in cash and cash equivalents

 

(1,890)

(1,992)

Cash and cash equivalents at beginning of year

 

6,518

8,231

Effects of foreign exchange rates on cash and cash equivalents

 

122

279

Cash and cash equivalents at end of year

8

4,750

6,518

             

 

 

NOTES TO THE ACCOUNTS

 

1. GENERAL INFORMATION

WYG plc is incorporated and domiciled in England.  The address of its registered office is Arndale Court, Otley Road, Headingley, Leeds, LS6 2UJ.  The company's shares are traded on AIM, a market operated by the London Stock Exchange plc.

The principal activity of the Group during the period ended 31 March 2018 was that of programme, project management and technical consultancy.  The Group's revenue derives from activities in the UK and the Group's International division.

The results for the year ended 31 March 2018 have been extracted from audited accounts which have not yet been delivered to the Registrar of Companies. The Financial Statements set out in this announcement do not constitute statutory accounts for the year ended 31 March 2018 or the year ended 31 March 2017. The financial information for the period ended 31 March 2017 is derived from the statutory accounts for that year. The report of the auditor on the statutory accounts for the year ended 31 March 2018 was unqualified and did not contain a statement under Section 498 of the Companies Act 2006.

2. BASIS OF PREPARATION

Of the new standards, amendments and interpretations that are in issue and mandatory for the financial year end to 31 March 2018, there is no financial impact on this condensed consolidated financial report.

Items that are material and whose significance is sufficient to warrant separate disclosure and identification within the consolidated financial statements are included within separately disclosed items.

The audited accounts for the year ended 31 March 2018, from which these results have been extracted, have been prepared on a going concern basis.

 

3. DETAILED CONSOLIDATED INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

Revenue including share of joint ventures

 

 

Operating (loss)/profit

 

 

(Loss)/profit before

 tax

 

£'000

£'000

£'000

Year ended 31 March 2018

 

 

 

Before separately disclosed items

154,351

3,506

2,919

Separately disclosed items

-

(8,267)

(8,267)

Total

154,351

(4,761)

(5,348)

Year ended 31 March 2017

 

 

 

Before separately disclosed items

151,824

8,768

8,214

Separately disclosed items

-

(6,615)

(6,615)

Total

151,824

2,153

1,599

                     

 

 

Details of separately disclosed items

 

2018

2017

 

£'000

£'000

Share option credit/(costs)

251

(742)

Amortisation of acquired intangible assets

(1,160)

(1,863)

Impairment of intangible assets

(2,406)

-

Other charges

(4,952)

(4,010)

Separately disclosed items

(8,267)

(6,615)

 

 

The Group has incurred a number of material items in the year, whose significance is sufficient to warrant separate disclosure. The key elements included within separately disclosed items are:

· Annual credit/(charge) in relation to share option costs. The credit in the current year reflects the reduction in associated employee tax liabilities following the fall in the Group's share price.

· Annual charge for the amortisation of acquired intangibles.

· Impairment of acquired intangibles following the closure of North Associates

· Items included in other charges in the year are legacy claims relating to non-continuing businesses (£2.5m), closure costs of North Associates (£0.8m), bank refinancing fees (£0.2m) and costs incurred for the strategic growth plan net of credits in relation to deferred acquisition balances (1.5m).

· The other charges in the prior year relate to costs incurred for the strategic growth plan and the closure of certain Polish operations

The directors believe that the operating profit before separately disclosed items gives a better view of underlying trading for the Group and enables the user of the accounts to more accurately understand the Group's performance. Although the share option costs and amortisation of intangible assets are charges which occur annually, the directors excluded those charges from operating profit before separately disclosed items because their value is significant and they are not related to the underlying performance of the business. The other charges in the year are expected to be one off in nature. Consequently, the directors believe it is appropriate to exclude them from operating profit before separately disclosed items.

 

4. SEGMENTAL INFORMATION

Business segments

IFRS 8 requires segment reporting to be based on the internal financial information reported to the chief operating decision maker. The Group's chief operating decision maker is deemed to be the executive management team comprising the Chief Executive Officer and the Chief Financial Officer. Its primary responsibility is to manage the Group's day to day operations and analyse trading performance.

Following the launch of the Group's new long-term growth strategy, the business has been reorganised to focus on the strengths of our consultancy services and international development business. The Group's segments are detailed below and are those segments reported in the Group's management accounts used by the executive management team as the primary means for analysing trading performance. The Executive management team assesses profit performance using operating profit measured on a basis consistent with the disclosure in the Group accounts.

The Group's operations are now managed and reported by key technical segments as follows:

·              Consultancy Services (includes UK and CEE; 91% of revenues relate to the UK)

·              International Development

The prior period results have been restated to reflect this new reporting structure.

The segment results for the year ended 31 March 2018 are as follows:

 

 

 

Consulting Services

International Development

Group

 

 

 

2018

2018

2018

 

 

 

£'000

£'000

£'000

 

 

 

 

 

 

 

Revenues including share of joint venture revenues

 

119,264

35,087

154,351

 

Less share of joint venture revenues

 

(1,500)

-

(1,500)

 

 

 

117,764

35,087

152,851

 

Result

 

 

 

 

 

Operating profit before central overheads and separately disclosed items

 

5,441

2,015

7,456

 

Central overheads

 

 

 

(3,950)

 

Operating profit before separately disclosed items

 

 

 

3,506

 

Separately disclosed items (Note 3)

 

 

 

(8,267)

 

Operating loss

 

 

(4,761)

 

Finance costs

 

 

 

(587)

 

Loss before tax

 

 

 

(5,348)

 

Tax

 

 

 

336

 

Loss for the period

 

 

 

(5,012)

 

Loss attributable to the owners of the parent

 

 

 

(5,012)

 

 

 

 

 

 

 

       

 

 

4. SEGMENTAL INFORMATION CONTINUED

 

The segment results for the year ended 31 March 2017 have been restated to reflect the new reporting segments:

 

 

 

Restated Consulting Services

Restated International Development

Group

 

 

 

2017

2017

2017

 

 

£'000

£'000

£'000

Revenue

 

 

 

 

External revenue

 

115,766

36,058

151,824

Less share of joint venture revenues

 

(1,284)

-

(1,284)

 

 

114,482

36,058

150,540

Operating profit before central overheads and separately disclosed items

 

8,383

4,677

13,060

Central overheads

 

 

 

(4,292)

Operating profit before separately disclosed items

 

 

 

8,768

Separately disclosed items (note 3)

 

 

 

(6,615)

Operating profit

 

 

 

2,153

Finance costs

 

 

 

(554)

Profit before tax

 

 

 

1,599

Tax

 

 

 

779

Profit for the year

 

 

 

2,378

Profit attributable to the owners of the parent

 

 

 

2,378

 

 

 

 

 

 

 

5. (LOSS)/EARNINGS PER SHARE

 

The calculation of basic and diluted earnings per share is based on the following data:

 

2018

2017

 

£'000

£'000

(Loss)/earnings for the purposes of basic and diluted earnings per share being profit for the year attributable to the owners

(5,012)

2,378

Adjustment relating to separately disclosed items (see note 3)

8,267

6,615

Tax impact of separately disclosed items

(10)

(354)

Earnings for the purposes of basic and diluted adjusted earnings per share

3,245

8,639

 

 

2018

2017

 

Number

Number

Number of shares

 

 

Weighted average number of shares for basic earnings per share

72,729,665

71,131,521

Effect of dilutive potential ordinary shares:

 

 

Share options

1,049,173

1,560,338

Weighted average number of shares for diluted earnings per share

73,778,838

72,691,859

 

 

 

(Loss)/earnings per share

 

 

Basic

(6.9p)

3.3p

Diluted

(6.9p)

3.3p

 

 

 

Adjusted earnings per share

 

 

Basic

4.5p

12.1p

Diluted

4.4p

11.9p

 

The adjusted earnings per share is calculated after excluding separately disclosed items. In the opinion of the directors, this more accurately reflects the underlying performance of the Group.

 

 

 

6. DIVIDENDS

The final dividend of 1.2p per share for the year ended 31 March 2017 (2016: 1.0p per share) was paid in September 2017. The interim dividend of 0.6p per share for the year ended 31 March 2018 (2017: 0.6p) was approved on 1 December 2017 and paid in April 2018 and was accrued in the financial statements at 31 March 2018. The amount recognised during the year was £1,288,000 (2017: £1,103,000).

The Directors have proposed a final dividend of 1.2p per share for the year ended 31 March 2018 (2017: 1.2p). This has not yet been approved by shareholders and so is not included as a liability in the financial statements.

 

 

7. CASH GENERATED FROM OPERATIONS

 

 

2018

2017

 

£'000

£'000

(Loss)/profit from operations

(4,761)

2,153

Adjustments for:

 

 

Depreciation of property, plant and equipment

1,331

1,670

Amortisation and impairment of intangible assets

3,832

2,235

Loss on disposal of property, plant and equipment

100

4

Share options (credit)/charge

(251)

742

Operating cash flows before movements in working capital

251

6,804

Decrease in work in progress

6,822

1,976

Decrease/(increase) in receivables

2,927

(7,030)

(Decrease)/increase in payables

(8,842)

1,630

Cash generated from operations

1,158

3,380

 

 

 

8. ANALYSIS OF CHANGES IN NET DEBT

 

 

At

 

Other

At

 

1 April

Cash

non-cash

31 March

Group

2017

Flows

Items

2018

 

£'000

£'000

£'000

£'000

Cash and cash equivalents

6,518

(1,890)

122

4,750

Bank loans and overdrafts

(9,000)

(2,000)

-

(11,000)

Net (debt)/cash

(2,482)

(3,890)

122

(6,250)

Cash in restricted access accounts

(1,214)

(50)

(32)

(1,296)

Unrestricted debt

(3,696)

(3,940)

90

(7,546)

 

Restricted cash relates to restricted access accounts in WYG International BV. Other non-cash movements represent currency exchange differences.

 

ENDS


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